Rental Property Investor · Sacramento, CA · Member since 2020 · 52 posts · 6 votes
Hello everyone! I am calculating the ARV & profit on a property and would like to know if I am doing this wrong? This example is as if a property was in a tax deed auction & I bid and won for the purposes of wholesaling it & selling it to an investor who plans on flipping it her or himself:
Purchase Price opening bid $3,626.47
winning bid: $10,000.00
ARV $410,700.00
Discount x 70%
___________________________
$287,490
Repairs -$20,000
___________________________
Max Allowable Offer (MAO) $267,490
Profit $257,490
Comparables:
1st: $415,000
2nd: $410,000
3rd: 407,100
I feel as though I am doing something wrong. I am of course assuming that the winning bid is $10K which most likely won't be that low with an ARV this high but it seems wayyy too good to be true? These are actual number of a property at a tax deed auction coming up but I am using this for a mock analysis to attach to my business plan so If anyone has any pointers please let me know, thank you!
Rental Property Investor · Laguna Niguel, CA · Member since 2019 · 175 posts · 116 votes
5y
I have heard of deals like this happening before. For the same reason you mentioned, it seems too good to be true.
What I do know about some of these auctions is that sometimes the banks will bid them up to get to what is a fair price. So it really depends on the state you are in. Also educate yourself on the laws for that county, you may or may not be required to pay fees to clear the title.
Also if you are able to research the property (google maps?) do so.
Lastly, as hot as this market is I would be surprised if several other investors are not looking at this same property and planning to start a bidding frenzy.
I think you can also look at past sales. If past properties have sold for those prices then you may have stumbled upon a gold mine.
At minimum I think you should go to the auction even if you don't bid.
Rental Property Investor · Sacramento, CA · Member since 2020 · 52 posts · 6 votes
5y
YOU ARE AMAZING!!! Everyone has been so great with responding and helping me just be realistic on my journey, it is appreciated more than I think you realize. Thank you so much. I am planning on going to an auction just to get a feel for it and see the bidding process. I've also been looking at prop stream as well to do due diligence about a property as well as have a foot on the ground out there (in Florida) to see what the actual address looks like in real time. Thank you again for your solution based advice!!
Investor · Lake Worth, FL · Member since 2016 · 233 posts · 140 votes
5y
@Shanai Rogers Hi Shanai. Remember that the tax deed auction you buy the rights to foreclose on the deed and any interest or fees the county collects if the owner doesn't pay within the cure period.
If the property is owned outright by the owner ie no mortgage then there is a 99.9% chance they will pay up or sell as they arent going to lose 300-400k.
If the property is mortgaged the bank will cure the note as they aren't going to lose say 200k over 10k.
In many states large institutions will buy up/bid tax deeds for what seems like small profits as even 3% return in 3-6 month will juice up thier numbers.
You can still mske good money with tax deeds but making a grand slam l iike the example you gave is very rare.
A more realistic scenario is taxes are behind for several years. Owner owes 28k for a 400k arv property which is awful shape and needs 175k of work. So you have a $75k profit.
Rental Property Investor · Sacramento, CA · Member since 2020 · 52 posts · 6 votes
5y
@Ken Naim Thank you!! Yes anytime I was remotely close to bidding it would be redeemed, literally minutes before the auction was going to start.It seemed almost impossible to succeed so I definitely believe and understand what you mean. I am starting to focus my business plan on a range of exit strategies as opposed to getting caught up on one because it can be such a time stealer. Thank you for your help everyone on this post is just amazing I really appreciate everyones feedback so much. Being in the startup and diligence stage this means so so much